4.2 TBML Concepts & FATF/SBP Typologies
Key Takeaways
- The August 2025 SBP framework defines trade-based money laundering and terrorist financing as disguising proceeds of crime and moving value through trade to legitimize illicit origin or to finance terrorism, via misrepresentation of price, quantity, and/or quality of imports or exports.
- SBP lists the main methods as under-invoicing, over-invoicing, multiple invoicing, short or over shipment, obfuscation of the type of goods or services, and fictitious trades with no shipment—the same family of techniques FATF describes as TBML.
- On an import, over-invoicing transfers excess value abroad; under-invoicing lets the importer receive excess value in goods. On an export the arrows reverse. Phantom shipment is shipping nothing while collecting against false invoices.
- Trade fraud (duty evasion, rebate abuse, cheating a counterparty) and money laundering can use the same paperwork tricks; TBML is the use of those tricks to move or disguise criminal value or terrorist funds, not merely to win a commercial edge.
- SBP’s published Annex C samples use chemicals, produce, solar/consumer goods, FI misuse, hawala settlement, transfer pricing, and vessel-origin concealment. Pakistani high-volume goods such as textiles, rice, scrap, and gold present the same price, weight, and quality weaknesses; this section does not invent prosecution files for those commodities.
Definition used in the current SBP framework
This independent OpenExamPrep section teaches TBML as Pakistani ADs meet it in SBP materials. It is not an SBP, FATF, or NIBAF publication.
The revised Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing, issued with EPD Circular Letter No. 08 of 2025 (12 August 2025), defines Trade Based Money Laundering and Terrorist Financing as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize the illicit origin of funds or to finance terrorist activities.” It “involves misrepresentation of price, quantity and / or quality of imports/exports to transfer value across the border.”
That sentence is the exam-ready definition. TBML is not “trade finance is risky.” It is cross-border value transfer hidden inside a commercial shipment (or a pretended shipment). The same framework’s introduction states why banks are in the middle: trade volumes are large, documents look ordinary, and the main methods are under-invoicing, over-invoicing, multiple invoicing, short/over shipment, obfuscation of type of goods/services, and fictitious trade transactions (no shipments).
Those methods are how FATF TBML typologies appear in SBP materials. SBP does not reprint a FATF PDF inside the circular. It embeds the FATF-style catalogue in the 2025 introduction and in Annexure B – Common Typologies of Trade Based Money Laundering. Teach the SBP wording; do not invent a different “SBP-only” method list.
Trade transactions in the 2025 definitions are not limited to LCs. They include letter of credit, documentary collection, registered contracts, open account in imports and exports, advance payment import/export, remittance for import and export of services, and foreign bank guarantee / stand-by LC. An open-account rice shipment can be TBML just as an LC can.
How each typology moves value
Annexure B is a direction-of-value table. Memorize the import column and the export column separately. ADs who only remember “over-invoicing is bad” will miss which party received the excess value.
| Method (SBP Annex B / 2025 intro) | What the documents do | Import: who gets excess value | Export: who gets excess value |
|---|---|---|---|
| Under-invoicing | Invoice price below fair market value | Importer receives excess value (goods worth more than the FX paid) | Exporter transfers excess value to the foreign buyer |
| Over-invoicing | Invoice price above fair market value | Importer transfers excess value abroad | Exporter receives excess value in the repatriated proceeds |
| Short shipment | Ships less quantity or quality than invoiced | Transfers excess value (pay for goods not fully received) | Exporter receives excess value |
| Over shipment | Ships more than invoiced | Importer receives excess value in goods | Exporter transfers excess value |
| Obfuscation of type | Omits, disguises, or falsifies the description of goods or services | Either direction, depending on the hidden high-value versus declared low-value item | Either direction |
| Phantom / fictitious shipment | Ships nothing; false invoices and often false transport documents | Payment leaves Pakistan against no goods (import) | Proceeds enter Pakistan against no goods (export) |
| Multiple / double invoicing (2025 introduction) | Same shipment invoiced more than once, often to different banks or on slightly altered invoices | Repeated import payments for one cargo | Repeated receipt of export proceeds for one cargo |
Fair market value, defined in the 2025 framework, is the price in a competitive market where buyer and seller act independently, both know the relevant facts, neither is compelled, and all rights inherent in the item are included. Related-party “transfer prices” that ignore that test are a red flag, not a safe harbour.
Worked value arrows (no invented SBP percentages)
Over-invoiced import. A Lahore spinning mill’s invoice from a related trading company in the Gulf shows USD 80,000 for polyester chips that comparable Customs appraisements and exchange prices put near USD 50,000. The extra USD 30,000 is value leaving Pakistan through the banking channel. That may be capital flight, tax evasion, or laundering of other proceeds. The AD’s job is not to pick the predicate offence in the first five minutes; it is to see that price is the pipe.
Under-invoiced export. A Sialkot sports-goods exporter invoices a related UAE buyer at half the market price. Goods of high value leave; low FX comes back. Residual value can be parked abroad or used to settle a hawala obligation. SBP Case Study No. 6 in Annexure C is the official sample of over-invoiced exports used to settle hawala, including a motive to inflate export volume for rebates and discounted financing. That is SBP’s published sample, not a newspaper case invented here.
Short shipment / quality cheat. Scrap metal invoiced as high-grade shredded scrap but stuffed with dirt and low-yield mix is a quality short shipment: the documents overstate value. Rice graded as super-kernel on the invoice and shipped as a cheaper grade is the same typology. The 2025 red-flag list specifically flags packing inconsistent with the commodity and descriptions that do not match the Goods Declaration.
Phantom shipment. Collection documents show a bill of lading and invoice; vessel tracking never shows the ship at the load port; no cargo exists. Annexure C Case Study No. 8 is SBP’s vessel-tracking sample: declared Middle East origin, transponder off near a high-risk producing country, per-unit price matching the hidden origin. Phantom and origin-concealment often travel together.
Multiple invoicing. The same container of knitwear is presented to Bank A under an LC and to Bank B under a “duplicate original” invoice on open account. Two ADs each think they are financing a unique shipment. Detection depends on technology to spot re-used invoices and bills of lading—an explicit 2025 technology item.
Trade fraud versus money laundering
Trade fraud is commercial or fiscal cheating: evading customs duty, claiming an unearned rebate, inducing a bank to pay on false documents, or short-supplying a buyer. Money laundering is dealing with proceeds of crime so that they appear legitimate, or moving value to hide origin. Terrorist financing may use clean or dirty money; the aim is to get value to a prohibited person or purpose.
The same invoice trick can serve both. SBP Case Study No. 4 describes a group that over-invoiced zero-rated solar panels (when valuation rulings moved) and under-invoiced high-duty consumer goods, with website impersonation and hidden beneficial ownership. Duty evasion is fraud. Using the banking channel to shift the residual value is the TBML overlay. ADs who close a file because “this looks like a Customs problem only” miss section 7 of the AML Act: a transaction with no apparent lawful purpose, or that hides proceeds, still needs an STR analysis.
Conversely, not every price variance is ML. A documented quality claim, a bona fide related-party manufacturing transfer with Customs-consistent values, or a thin market with no benchmark may explain a spread. The 2025 framework requires documented reasons when variance exceeds the bank’s own acceptable threshold—not a nationwide percentage invented for this chapter.
Pakistani commodity examples without fabricated cases
SBP’s Annexure C samples, as published, use plastic-granule chemicals, fruit and vegetables, solar panels and consumer goods, multi-BL FI misuse, hawala settlement, intra-company re-invoicing, and vessel-origin concealment. They do not name a convicted textile mill or a specific gold shipment. Do not dress those samples up as if they were FBR press releases about rice or scrap.
What is fair teaching is why Pakistan’s real trade book is fertile for the same methods:
- Textiles and garments. High volume, many HS lines, subcontracting, and related buying houses. Over-invoiced exports can inflate rebate or export-finance entitlements (the motive SBP itself lists in Case Study No. 6). Under-invoiced imports of fabric or trim can hide value parked abroad. Third-country “confirming houses” that never touch the goods match the related-party/third-country red flags in Case Studies 1–3.
- Rice and other agri-bulk. Grade, broken percentage, and moisture drive price. Short shipment and quality obfuscation are easier than with serialized machinery. CFR/CIF bulk is also where sea-only Incoterms and local marine insurance (section 4.1) meet TBML price checks.
- Scrap, including ships for breaking. Chapter 13 still has a dedicated LC procedure for old ships for scrapping. Scrap is heterogeneous; “others” HS headings and carton-style units of measure are exactly what the 2025 FI rules tell ADs to discourage. Weight-scale gaps versus invoice quantity are a short-shipment pattern.
- Gold and precious metals. High value, low bulk, and a DNFBP jeweler sector that is itself an AML Act reporting population. Price benchmarks exist (international fixes, local sarafa) so over- and under-invoicing is measurable. This is a goods-class risk, not a claim that SBP published a gold TBML judgment in Annex C.
Services get their own 2025 red-flag block because supply is hard to verify and prices are less standard: royalties, “consultancy,” and IT invoices with no capacity to perform are TBML/TF cousins of goods misinvoicing.
Traps
- Treating TBML as an LC-only problem
- Remembering over-invoicing without the import/export direction of value
- Calling every Customs under-valuation “not our problem”
- Inventing named Pakistani prosecutions for textiles, rice, scrap, or gold that SBP did not publish in the framework
- Ignoring multiple invoicing because Annex B’s printed table emphasizes price and quantity more than the introduction’s method list
On an import into Pakistan, what does over-invoicing of goods typically do to cross-border value, according to SBP’s Annex B typology table?
In the 2025 SBP framework, what is a phantom or fictitious trade transaction?
How should an AD separate ordinary trade fraud from TBML when the same under-invoicing technique appears on an import file?